R Street Institute
R Sheets Insurance

Social Inflation

by Jerry Theodorou
Dec 6, 2021
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Author

Jerry Theodorou
Policy Director, Finance, Insurance and Trade

Key Points

Social inflation creates ever-higher median court judgments and settlements.

A plaintiff bar benefiting from large awards propagates and amplifies the phenomenon.

Left unchecked, ballooning awards send inappropriate price signals, feeding a self-perpetuating trend.

Courts, legislatures and the defense bar need to work actively, strategically and cooperatively to create awareness of the dangers of out-of-control social inflation and introduce court and public policy measures to stem its growth.

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Background

Social inflation refers to the forces responsible for elevated civil litigation awards that are out of proportion to sustained economic damages. Median jury verdicts and out-of-court settlements are rising at rates far above economic inflation and there are more frequent “nuclear verdicts” (awards in excess of $10 million). This phenomenon amounts to a “tort tax,” with crippling financial costs to defendants. These financial costs trickle down, creating higher costs of goods and services for all Americans.

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